It amazes me how little people in my generation (the dreaded millennials) know about money matters. Who can blame them, though? I went to college and learned about differential equations and artificial intelligence before I learned anything about refinancing debt and 401ks! I’m not a financial guru by any means so you should take what I say with a grain of salt and do your due diligence, but it’s been my #1 goal in 2018 to get out of debt.
I cringe internally every time I see a statement with an interest charge – seriously, pull up your loan or credit card statement and look at how much interest you got charged last month! My auto loan has a 3.6% interest rate and according to my statements, I’m paying ~$50 -60 in interest out of my monthly payment, but when I do the math personally, I’ve paid almost $900 that hasn’t been applied to my principal. That’s f*cking RIDICULOUS, if you ask me.
The good news is, I’m almost 30% of the way to being debt free! I definitely attribute part of my success in my debt reduction to consolidating my debt and refinancing my loan. So let’s get down to it, what is refinancing and why should you do it?
Refinancing is basically taking out a new loan at a lower interest rate to pay off an older loan or credit debt.
Here are 3 reasons why I consolidated and refinanced my loan:
1. Paying one bill instead of multiple
I originally opened my first loan to consolidate my debt. I was paying for 3 different credit card payments with different balances and it was hard to focus on which one to pay off first. Taking out the loan made it more manageable and it was easier to make one payment a month than 3 different ones.
2. Lower Interest Rates
The interest rates on my credit cards were pretty high – ranging from 14% – 19% – and the rates for personal loans were lower. However, my credit score had dipped considerably when I took out the first loan with USAA, I ended up with a 10.5% interest rate. Since I took out that first loan, I had built up my credit score so I qualified for an even better rate. I refinanced last year with SoFi and ended up with a 5.49% interest rate. Of course, I’m losing money dragging it out, but it’s more motivating to see most of your payment going to principal instead of interest.
3. Lower Monthly Payments
This is only true if you’re refinancing a sum that’s less than your previous loan, if you’re consolidating debt it’s definitely going to be higher but we should really be more concerned about lowering your interest rates than your minimum payment if you are serious about tackling your debt.
So, how do you refinance?
You can go through your current bank, a credit union, or just google “refinance loan” and pick from one of the many options out there. I can’t speak for which banks are the best, but I took out my original loan with USAA and ended up refinancing with SoFi and had great experiences with both their customer services. This is going to be a complete shameless plug, but what I loved about SoFi is the process was super easy and quick. I did my own research and shopped rates before deciding, but their process was super easy, there was no penalty for early payoff, no extra fees, and they offered more of a percent discount when I setup autopay monthly. I know a lot of people are wary of using affiliate links and I do get a little bonus if you use my referral link, but you get a $100 welcome bonus if you do. 😉
This post contains affiliate links, but opinions expressed are my own.
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4 replies on “Why I Refinanced My Loan and Why You Should Do It, Too”
Thanks for writing about this. You make really good points! This is something people don’t always consider but would be a good idea!
Congrats on getting so much paid off! I looked at refinancing a loan, but it just didn’t provide any savings. I will have to think about it once I pull out a mortgage!
I definitely need to look into this. My goal for 2018 is to get a little bit more money smart. I doubt I’ll get out of debt completely this year, those darn student loans!
Refinancing is the smart thing to do, it usually saves you lots of money on interest.